Corporate Governance and the Goal of the Firm: In Defense of Shareholder Wealth Maximization

• Date: 01 November 2016
• Author: Diane Denis
• DOI: http://doi.org/10.1111/fire.12115
• Published date: 01 November 2016

The Financial Review 51 (2016) 467–480

Corporate Governance and the Goal

of the Firm: In Defense of Shareholder

Wealth Maximization

Diane Denis*

University of Pittsburgh

Abstract

This essay is based on my keynote address at the 2016 annual meeting of the Eastern

Finance Association. I propose that misunderstandings about the traditional model of corpo-

rate governance, with its emphasis on shareholder wealth maximization, contribute to negative

societal attitudes about corporations. I discuss the implications of shareholder wealth maxi-

mization for other corporate stakeholders, the dangers of deviating from shareholder wealth

maximization, and the roles that the media and the government play in the governance of

corporations.

Keywords: corporate governance, shareholder wealth maximization, objective of the firm

JEL Classifications: G34, G38

1. Introduction

The modern corporation as we know it took shape during the 19th century.

Though much of its early evolution took place in Britain and the United States, the

∗Corresponding author: Joesph M Katz Graduate School of Business and College of Business Adminis-

tration, University of Pittsburgh, Pittsburgh,PA 15260; E-mail: dkdenis@pitt.edu.

I thank David Denis, Ken Lehn, Mark Walker, seminar participants at the Eastern Finance Association

annual meeting, and the Editors, Srinivasan Krishnamurthy and Richard Warr, for very helpful comments

and suggestions.

C2016 The Eastern Finance Association 467